Types Of Good Debt

There are good debts that we can take to ensure convenient lifestyle and higher productivity. For many people, home mortgage is one of the biggest debts. Mortgage is a good debt, if the value of the house appreciated higher each year than the interest rate. It means that we gain annually profit. Mortgage is also tax deductible. We should also consider having equity line of credit and it is another form of good debt. As an example, we want to buy an affordable used car for commuting to workplace. The dealer offers 3 year loan with 8 percent of annual interest rate. However, our line of credit offers 4.5 percent of interest rate and in this situation, we should borrow from the line of credit. It means that we will be save 3.5 percent of interest rate each year. The monthly repayment will be lower and we will be able to keep more money in our pocket, which can be used to repay bad debts that we have, such as credit card debts that are used for consumption.

Student loan could also be seen as good loan, especially if we have a good plan on what we will with the degree that we will get. As an example, we may plan to get an initial job with $45,000 annual salary, initially. It means that we shouldn’t have a hard time paying off the student loan. On average, we need $6,000 for annual repayment of student loan. This is acceptable for young workers who don’t have family yet. The amount of repayment will be negligible once we are nearing the six-figure salary. In the end, student loans could pay for itself dozens, if not hundreds of time throughout lifetime. If we are able to achieve that, we can guarantee that student loan is a good debt. Another good debt is interest-free purchases and some stores allow us to do this. It means that the listed price will be the same with the total amount that we pay once we paid off the debt. However, there’s a possibility that the item prices are somewhat higher than other stores. So we should make sure that it’s still worth it and the item should be important for us.

One more good debt is if it is able to help us repay bad, high-interest debt. This is a common method that is used to solve debt problems that affect many people. It is similar to debt consolidation program, when all of our high-interest debts are repaid in full and the total amount becomes a single new, large debt; but with lower interest rate. This will simplify our effort to repay our debts and the amount of annual repayment will be much smaller. All good debts will allow us to get only positive results and we should know the company we are lending the money from. If we want to invest the money that we borrow, we should also know the company we are investing in. We should have a good confidence that our overall portfolio will increase at a very substantial rate.